A formidable downtrend has been broken in Biogen Inc (BIIB), as the European Medicines Agency’s Committee of Medicinal Products for Human Use, or “CHMP,” issued a positive opinion on Biogen’s Tysabri drug and recommended approval for its expanded use as a disease modifying therapy.
For bulls, a BIIB long call spread looks good to deliver “champ-style” results. Let me explain.
The broader market’s first session of summer trading was marked by typical lethargy Tuesday, but that didn’t prevent shares of BIIB trading higher by nearly 2.5% on heavier-than-normal volume.
Coupled with an increasingly bullish price chart since releasing better-than-expected earnings and a positive outlook — investor support should continue to grow in BIIB and produce additional gains.
BIIB Stock Daily Chart
BIIB has come a long way since we last discussed its technical picture. At its worst in mid-March, Biogen stock had carved out a bearish flag pattern while displaying continued relative weakness versus the market.
Our technical concern for lower share prices in BIIB was initially accurate. However, profits were fleeting as the movement also marked the low in a double bottom that formed shortly thereafter.
Investors managed to reclaim Biogen stock’s long-term 200-day simple moving average, establish a fresh higher-high within the developing up-channel and forge a definitive breakout above the larger down trend.
Longer-term, Wall Street’s saying of “all gaps get filled” would bode particularly well for BIIB’s new trend. A massive and bearish earnings-related gap from 2015 has roughly $95 of upside to make good on that promise.
BIIB Bull Call Spread Strategy
In reviewing the BIIB options board, the September $310/$335 bull call spread for $7 looks like a “CHaMP” in our opinion.
The limited risk, out-of-the-money spread maintains a maximum payout of $18 or return of 257% if BIIB can move above $335 at expiration.
Given BIIB’s discussed bullish technical picture, an earnings catalyst during the vertical’s life cycle and plenty of time on the calendar; the roughly 16% required to produce this profit is certainly possible.
Bottom-line though and as, if not more importantly, the vertical can also be adjusted along the way to build an even stronger risk-to-reward spread profile should BIIB continue to improve its standing with bulls.
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.